One Microsoft, Four Brains

Last week, Microsoft announced a sweeping reorganization of its corporate structure. But how does this change really affect Microsoft’s customers and the software and solutions we use and support every day? Like many things in life, it depends.

I assume most people reading this are at least passingly familiar with the news: In an attempt to end cross-divisional rivalries, Microsoft CEO Steve Ballmer has restructured the firm along functional lines. (If not, please check out my news article "Microsoft Announces Sweeping Reorg" and quickie analysis "Microsoft Reorg Explained" for more information.) Microsoft’s plan sounds simple enough, and I had heard months ago that the reorg would indeed structure the company around its “devices and services” mantra. The thing is, that’s not what happened.

That said, only four of the new top-level organizations are engineering (by which I think they mean directly product-related) groups. These are Operating Systems, Devices and Studios, Applications and Services, and Cloud and Enterprise. Not quite “devices and services” but close enough. Each is run by an executive vice president. (The other top-level groups under this new system are Marketing, Business Development and Evangelism, Advanced Strategy and Research, Finance, Human Resources and Legal; Microsoft also retains CFO and COO positions that report directly to Ballmer.)

So let’s look at those four top-level engineering groups.

First, the easiest one: The new Cloud and Enterprise group maps directly to the old Server & Tools division. It’s lead by the same person, Satya Nadella, a compelling personality, deep thinker, true engineer, and, I think, the man most qualified to succeed Mr. Ballmer in running the entire company. Cloud and Enterprise focuses on Windows Server, Windows Azure, Visual Studio, and Microsoft’s other data center, database, enterprise I,T and development tools products. This is a great example of “if it ain’t broke, don’t fix it.” You can expect the same high level of quality from this group as we saw before from Server & Tools.

The other engineering groups all represent significant change and come with some obvious questions.

The new Applications and Services group is led by Qi Lu, who is widely regarded as deeply intelligent and analytical. Previously, however, he ran Microsoft’s Online Services division, which has hemorrhaged money basically since its inception. Now, however, Lu is in charge of some of Microsoft’s most important businesses—including Office, Office 365, SharePoint, Exchange, Yammer, Lync, and Skype—as well as Bing, Bing Apps, MSN, and Advertising. Put simply, this new group is basically a combination of the old Microsoft Business division, Skype, and the Online Services division, and this combination should tell you all you need to know about how Microsoft sees the future of its Office products. And just a heads up: Office is currently Microsoft’s single biggest business, atop both Windows and Server.

The new Devices and Studios group is run by former Windows chief Julie Larson-Green. This group picks up Microsoft’s hardware products—Xbox, Surface, and accessories—as well as what the firm calls Microsoft Studios, which includes the development of games, entertainment, and other content experiences. Some have wondered whether Larson-Green’s move to this group represents some sort of a demotion, since she previously ran Microsoft’s most important business, Windows. But I see it as more of a lateral move and, more important, a chance to show Mr. Ballmer that she can make the group that most closely parallels Microsoft’s “devices and services” vision a success going forward. She’s got her work cut out for her: Despite some financial maneuvering, Xbox is a money loser over time, the Xbox One console is off to a bad start, and Surface has had a rocky first year. But those who have worked with her tell me that Larson-Green is better than her public appearances suggest. And none of this will matter much to IT, so there are no huge worries here regardless.

The Operating Systems group seems straightforward, but it isn’t. It’s run by former Windows Phone chief Terry Myerson, which triggers all kinds of warning bells, and the group is responsible for the Windows, Windows Phone, and Xbox OSs. Finally putting Windows and Windows Phone together makes sense and could pay dividends down the road. But Myerson’s stewardship of Windows Phone has been lackluster at best, and one might naturally worry what effect he could have on Windows at a time when the classic desktop OS is struggling to adapt to a more mobile world. This is an area of some concern. On the good news front, this group’s makeup means that NT architect David Cutler—who most recently engineered the three-in-one OS in the Xbox One—is back in Windows. You’ve gotta love that.

There is one more appointment worth noting. Eric Rudder, previously the number two in Server & Tools, is running a new Advanced Strategy and Research group that Microsoft says is responsible for the company’s overall technical strategy, technology policy, and forward-looking development efforts. This puts him in some big shoes previously worn by the likes of Mr. Cutler and Mark Russinovich (who works on Azure now) and is worth paying attention to.

In the tradition of Monday Morning Quarterbacks everywhere, it’s now retroactively obvious that the notion that a company as big and diverse as Microsoft could be reorganized under a simple “devices and services” structure is of course fanciful and unrealistic. But the parts of Microsoft we do care about, as seen in those four primary engineering groups, do each map nicely, in their own ways, around the “devices and services” mantra. Who knows? Maybe Steve Ballmer was on to something after all.

Discuss this Article 5

Please provide more analysis on what the choice of Terry Myerson for Windows means. Everyone says tha changes to the Operating Systems guru is the most interesting and important, but I haven't seen much real analysis. It can't be accidental that Terry Myerson was chosen. Please be willing to speculate.

I, also, am curious as to why you believe the Myerson appointment as head of Windows triggers "warning bells;" that is, is it anything beyond the fact that WP appears to have ground to a full halt of late? Do you have any insight as to how Myerson is perceived within MS? You suggested that both Lu and Nadala appear to command great respect. Is this not the case with Myerson?

It really doesn't matter who is managing what division because the better move for Microsoft is to just FIRE BALLMER. Now instead they allowed Steve to take full control of the company. This is shameful that a once respected market leader is becoming the laughing stock of the tech industry. It has reached a point where any tech journalist that doesn't suggest a change in leadership at Microsoft does not garner any respect among readers and is considered someone that doesn't care about the best interests for Microsoft as a whole.

I'm seriously disappointed that Exchange server didn't get moved to the server group where most of the enterprise minded employees are.

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